(Bloomberg) — In the never-ending give and take between hedge funds and their investors, some managers are simply taking too much. Says who? Surprisingly, a hedge fund manager — one of the biggest, in fact.
“It’s really important that most of the alpha goes to the clients,” Luke Ellis, who oversees about $124 billion as chief executive officer of Man Group Plc, said in a Bloomberg “Front Row” interview. “The client is the one taking all the risk, and the client should get the majority of the rewards.”
His issue isn’t with the typical hedge fund. Indeed, Man has funds that still charge the classic “two and 20” — 2% of assets and 20% of investment profits in a given year. It also has products that cost a lot less, which explains why the company’s average fee in 2020 was 0.75%, or 75 cents on every $100 under management.
What irks Ellis are the expensive funds, many of them run by billionaires, that don’t target high enough volatility or, worse, lose money for clients. He won’t name them, of course, but some of the firms with funds meeting that description have included Bridgewater Associates, York Capital Management and BlackRock Inc.
The question isn’t whether a hedge fund should get paid to outperform, it’s how much. Ellis said that clients should keep two-thirds to three-quarters of every dollar of excess return, or alpha. Using his yardstick, a $10 billion fund with a two-and-20 fee structure would have to make a gross return of about $1.5 billion, or 15%, for the economics to be fair to all parties. Last year, the average hedge fund returned 9.5%.
Patrick and John Collison have got the luck of the Irish.
Stripe — the Irish brothers’ digital payments brainchild — has reportedly raised $600m at a $95B valuation, making it the most valuable private company ever to come out of Silicon Valley.
Here’s why: It’s the platform other platforms use to process money
Some 90% of US adults have bought from companies that use Stripe.
The company counts Amazon, Salesforce, Microsoft, Shopify, Uber, and Zoom among its customers — and at least 50 of these customers process $1B+ on Stripe annually.
In 2020, the company signed up 200k+ new European customers and handled 5k requests per second.
All this success is a boon for Ireland
Stripe plans to invest heavily in Europe and create 1k jobs at its Dublin HQ, a plus for a budding Irish startup community that saw total VC funding jump 13% in 2020.
CEO Patrick Collison, still just 32, was especially proud of a $50m investment in Stripe from Ireland’s National Treasury Management Agency.
But Stripe didn’t even need the funding…
… “It will just sit on the balance sheet” as a “rainy day fund,” according to Mike Moritz, partner at Sequoia and a Stripe board member.
Stripe, whose mission is to increase the GDP of the internet, sees a wide-open road ahead, with just 14% of commerce happening online today, up from 10% a year ago.
Stripe’s already done well at achieving that mission: The company has greater payment volume today than the entire ecommerce market when it was founded a decade ago.
Patrick and John, the next round of Guinness is on you.
Yes. We are in a stock market bubble. But what if conventional methods of examining market cycles miss a crucial point? While we often talk about parts of cycles (bull or bear), exploring the full-market cycle may provide another way to look at long-term bubble cycles.
Understanding The Risk
Over the next several weeks, or even months, the markets can extend the current deviations from the long-term mean even further. But that is the nature of every bull market peak and bubble throughout history as the seeming impervious advance lures the last of the stock market “holdouts” back into the markets.
As Vitaliy Katsenelson once wrote:
“Our goal is to win a war, and to do that we may need to lose a few battles in the interim. Yes, we want to make money, but it is even more important not to lose it.”
I wholeheartedly agree with that statement, which is why we remain invested but hedged within our portfolios currently.
Unfortunately, most investors have very little understanding of markets’ dynamics and how prices are “ultimately bound by the laws of physics.” While prices can certainly seem to defy the law of gravity in the short-term, the subsequent reversion from extremes has repeatedly led to catastrophic losses for investors who disregard the risk.
Just remember, in the market, there is no such thing as “bulls” or “bears.”
There are only those who “succeed” in reaching their investing goals and those that “fail.”
Lets Explore the Cycles here
Roblox, the kids gaming app that surged in popularity during the pandemic, soared in its market debut on the New York Stock Exchange on Wednesday. The company’s stock closed at $69.50 apiece, giving the company a market cap of $38.26 billion.
Roblox went public through a direct listing, following the lead of other tech companies including Spotify, Slack and Palantir. Instead of raising fresh capital in exchange for new shares, Roblox allowed existing shareholders to sell immediately, without being subject to a lockup period.
Shares began trading at $64.50, which represented a 43% increase from a private financing round in January, when the company sold shares for $45. The NYSE set a reference price on Tuesday of $45, though no stock changed hands at those levels. The reference price tends to reflect private market trading and does not indicate where a stock will open.
Last week’s sell-off left the “bull market” on shaky ground.
The big question for investors at the moment is whether the 11-year old bull market is ending or is this just a “pause that refreshes?”
While the optimistic “hope” is that this is just a pause within a continuing “bull market” advance, from a money management standpoint getting the answer “right” is vastly more important to long-term investing outcomes.
The easiest way to approach this analysis is to start with the following basic premise:
“Bull markets are born on pessimism, grow on skepticism, and die on euphoria.” -Sir John Templeton
It’s almost as if the Biden administration and some of the most progressive Democrats out there, want the market to crash.
As a reminder to readers, the biggest reason why yields surged yesterday during Powell’s pow-wow is because the Fed chair refused to address the topic everyone has been obsessing over, namely what will be the fate of the SLR exemption which expires at the end of the month and which, unless renewed, will lead to dramatic balance sheet shrinkage across US banks leading to a violent deleveraging as banks are forced to dump bonds accelerating what is already a violent selloff in rates (read our full discussion on the SLR in “Why The SLR Is All That Matters For Markets Right Now“).
So, adding even more fuel to the fire, overnight Politico reported that the FDIC Chair Jelena McWilliams said it doesn’t seem like banking agencies need to extend an emergency move that made it cheaper for insured depository institutions to hold cash and U.S. government bonds on their balance sheets. The most important question rests with the Federal Reserve, she said.
“That’s because capital requirements for the parent holding company, which is regulated by the Fed, are more important for determining how expensive it is for those banks to hold Treasuries, she said.”
As a further reminder, late last week, Senators Elizabeth Warren and Sherrod Brown urged U.S. regulators to reject lenders’ appeals to extend the SLR exemption. In a joint letter to the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, the Democratic Duo argued that the banking industry is taking advantage of the coronavirus crisis to “weaken one of the most important post-crisis regulatory reforms.” Warren of Massachusetts and Ohio’s Brown, who took over the Senate Banking Committee this year, said granting the extension would be a “grave error.”
As we said in response, perhaps that would indeed be a grave error “but a bond market crash and deeply negative short-term yields would be a far more grave error, especially to the Democrats who are demanding that the Fed monetize trillions in debt in 2021 to fund Biden’s trillions in fiscal stimulus bills, something the Fed would not be able to do if the SLR exemption was not indefinitely extended.”
In other words, for whatever reason – and it certainly may be because they simply have no idea how dire the consequences would be, it now appears that there is a full-court press by the administration and Democrat politicians to not renew the SLR and unless the Fed steps in and overrides this, brace for impact as banks will have no choice but to dump tens of billions of holdings into the open market sparking the next full-blown crash as first yields soar and then all high-duration stocks, i.e., growth names, crater.